Thursday, December 15, 2011

Brad DeLong links to my discussion and highlights in particular many observations about how Keynes was not the man portrayed in the Keynes v. Hayek videos. That inspires me to post something Keynes wrote in The Economic Consequencs of the Peace that is one of the more powerful pieces of prose I've read recently:

"The following is by a writer in the Vossische Zeitung, June 5, 1919, who accompanied the Hoover Mission to the Erzgebirge:

"I visited large country districts where 90 per cent of all the children were ricketty and where children of three years are only beginning to walk.... Accompany me to a school in the Erzgebirge. You think it is a kindergarten for the little ones. No, these are children of seven and eight years. Tiny faces, with large dull eyes, overshadowed by huge puffed, ricketty foreheads, their small arms just skin and bone, and above the crooked legs with their dislocated joints the swollen, pointed stomachs of the hunger œdema.... 'You see this child here,' the physician in charge explained; 'it consumed an incredible amount of bread, and yet did not get any stronger. I found out that it hid all the bread it received underneath its straw mattress. The fear of hunger was so deeply rooted in the child that it collected stores instead of eating the food: a misguided animal instinct made the dread of hunger worse than the actual pangs.'"

Yet there are many persons apparently in whose opinion justice requires that such beings should pay tribute until they are forty or fifty years of age in relief of the British taxpayer."

It's not often that I have to put down a book and not continue reading because it just requires too much effort from me to keep reading, but a couple weeks ago, when I first read that passage, happened to be one of those times. When you read Keynes, you realize you are reading a man of profound humanity and spirit. Human life is hard and wracked with coercion on all sides. Sometimes collectively the right thing to do, and the liberal thing to do is seek out the option that minimizes those coercions. Sometimes that involves errecting an apparatus of coercion, like the state, to make sure that gets done. A coercive world puts real people in terrible situations. People who just accept that coercion passively - rejecting a countervailing coercion from the state as being always and everywhere illiberal - are fooling themselves if they think they are standing valiantly opposed to coercion. The task before a real classical liberal is immeasurably harder than that of consistently saying "no" to any democratic action. There was a time when democratic problem solving was central to the classical liberal vision. For a lot of people today it's considered antithetical. The task in front of a classical liberal is hard. The world is a very coercive place, and the task of a classical liberal is to minimize that coercion, not to pretend that anyone who breaths the word "democracy" is abandoning liberty. We used to consider people who thought like that "tories" or "royalists" or "reactionaries" - not classical liberals. I'm not willing to go that far quite yet. But I do wish democratic humanitarianism was taken more seriously than it is.

By the way - is anyone aware of Murray Rothbard's reaction to the incidents that Keynes described above? Google it. It's a fascinating read. Gene Callahan will get a kick out of it if he's not aware of it already.

Here's a searchable version of "Keynes, the Man" by Rothbard. Didn't find anything on "child", "starv", "rickett". I don't think you'll find anything good about Keynes coming from Rothbard, you can tell from the first paragraph he hates Keynes:

"John Maynard Keynes, the man—his character, his writings, and his actionsthroughout life—was composed of three guiding and interacting elements. Thefirst was his overweening egotism, which assured him that he could handle allintellectual problems quickly and accurately and led him to scorn any generalprinciples that might curb his unbridled ego. The second was his strong sense thathe was born into, and destined to be a leader of, Great Britain’s ruling elite. Bothof these traits led Keynes to deal with people as well as nations from a self-perceived position of power and dominance. The third element was his deephatred and contempt for the values and virtues of the bourgeoisie, forconventional morality, for savings and thrift, and for the basic institutions of family life."

Rothbard wrote a chapter in this volume called "Hoover's 1919 Food Diplomacy in Retrospect", criticizing claims that we were there to help rebuild Europe and feed starving people and suggest instead that the purpose of Hoover's mission was to increase markets for American farmers. That Hoover approved of the fact that American farmer's benefit is something I don't doubt. That Rothbard mocks the moral claims of Hoover is something that's more disturbing.

'not to pretend that anyone who breaths the word "democracy" is abandoning liberty.'

Gerald Gaus takes democracy very seriously, and he also expresses the same frustrations vis-a-vis contemporary classical liberals/libertarians who disparage the importance of democracy for a free society (see some of his replies in Cato Unbound).

Even more basic than hatredof democracy is the hatred of empiricism & facts.

"Does X actually increase human freedom?" is not a question the reactionary "liberal" haters entertain. It infuriates them to even hear the question put. Of course everyone knows the welfare increases human freedom overall. Their liberality is pure scam.

Keynes had a very deep sense of the sort of humanity he liked. He was very inconsistent in other words (like a lot of people). Instead of presenting an apotheosis of Keynes something more along the lines of a realistic version of the guy would be more helpful and interesting.

The three volume biography of Keynes by Skidelsky is the place to start.

AT Paul: "Of course everyone knows the welfare increases human freedom overall." Depending on what you mean specifically by 'welfare', I do not share your confidence that "welfare increases human freedom". My straw man: I work very hard, my neighbor is a lout. I spend every Friday chopping wood for him so that he has heat in February. My work on Friday for no return to avoid prison for tax evasion in no way increases my freedom. I am nominally sympathetic to the argument that we are better off as a society if he (more importantly his kids) have heat in February than not. I am not sympathetic to the argument that time I spend for no return somehow increases the net value of "human freedom".

I take it you believe your post tax income would be higher if there were no taxes at all?

People tend to presuppose their income as 'earned', but the reality is they still have more than if the government didn't exist. The best analogy is a salesman where a proportion of his sales go to the company he works for.

The company can not issue its own currency to meet its claims, for example. Unlike a government, it actually needs money revenues to operate. Governments only keep taxation for demand control and inflation controls only. They don't need revenues.

Also, there is an actual physical human being who has legal claims on the assets of the company. So the proportion of sales that goes to the company effectively goes to him. There is an actual person who benefits.

Who has claims on the assets of the government? No physical human being. For whose sake is the government? More or less everybody who is the government's subject. The government is actually an indirect channel between people for conducting certain activities. It is not an actual person to whom you make payments for providing services.

If the government was meant to be for everyone's benefit, it makes more sense to draw money out of the government than to "pay" it any money. Dumping money into the government's hands is like people dumping money into a well or near a shrine of a pagan god. That money never actually went to anybody.

It is 100% possible for government services to run mainly on printed money, as it does in Japan. And, as happens in Japan, it doesn't even lead to inflation, and Japan even remains in a deflationary situation. Only a supply shock, as happened in Zimbabwe or Weimar Germany, can cause a hyperinflation when mixed with money printing.

If we were concerned with maximising welfare, we can reduce all tax rates to zero. We don't do it, because government needs to keep moral philosophers and social commentators happy. If philosophers and social commentators are not happy, they become very angry. And when they become very angry, they write books and blog posts about it. Hence justifying taxation.

Erm, Prateek I think you missed my point. This wasn't about MMT, it was about the ethical case for taxation. People think of it as a 'necessary evil' but in fact income is higher with taxes than if they didn't exist.

I've read the horror stories of Germany and Eastern Europe. People dying of starvation every day, emaciated children etc etc, its very tragic.

Though whenever I hear about those horrors, I can't help but blame the British for the disaster. It was their blockade that forced a secular starvation/extreme rationing in Germany and the Austro Hungarian empire. And after the armistice in 1918, the British were adamant on making Germany sign punitive reparations agreements before they would lift the hunger blockade. They made sure no boat could go into Germany carrying food.

At Unlearningecon: I don't agree that income is higher with taxes than without. Income is higher with some structured society, but the taxes themselves are not the entity that increases total income. Even if taxes are a proxy for a society in which total income is higher, there would be a limit on higher taxes creating higher incomes. High taxes to support a bridge to nowhere, or high speed rail between two lightly populated cities in California do not raise my income.

I find this hard to believe. Even MMTers acknowledge that taxation would be required to reduce inflation - whichever way you paint it, taxes are needed eventually.

Charles Rice: my point is that, sure, some of our tax dollars are spent on things we disagree with or aren't economically justifiable, and our income would be higher without them. But your pretax income is still the direct result of many institutions that have been paid for via taxation, so to bemoan tax as coming along and 'taking' what's rightfully yours is a little one eyed.

Prateek Sanjay, I am hardly conversant with MMT - though I am favorably inclined to it. All the same, I have a couple observations which I hope will be helpful:

Firstly, your definition of a company ignores important cases: One of the dominant (probably the most influential, as a sharper of public policy) corporate structures is the public shares model - a kind of collective ownership. Actual collectives (i.e. Amul corporation in Gujarat, India; and Grameen Bank in Bangladesh) don't respond to traditional ownership theories at all. Better yet, in the wild and wooly days before regulation of the "private sector," many companies were able to force employees to use the corporate currency, i.e. funny money, at the company stores; this practice continued at least up to the 1910s (I think actually until the 1930s). See any discussion of mining towns from that period.

As a result of this (simple greed on the part of companies) and governmental policies which appear to have focused on preserving the value of held money, rather than alleviating monetary shortages, there was a large amount of scrip running about the States until only fairly recently. Abraham Lincoln, in his 1838 (I believe) speech on the Sub-Treasury proposal, elucidates deflationary concerns arising from a scheme which would necessitate the payment of large sums into a new taxation scheme, which would have been a near majority of the specie then in circulation; Lincoln refers amusingly to rags and "shin-plasters" being used as an in-kind tax payment.

MMT proponents argue (I'm not sold enough to write "point out" here) that no money enters the market until it is spent by the government.

I think that a challenge for the argument from MMT may be that by forcing companies to pay wages in U.S. dollars, and taxing both workers and their employers, we utilize another (to my mind, underrated) tool to increase the commonplace nature and accepted use of the national fiat currency, which increases the freedom of workers and companies by ensuring their proceeds are universally convertible, and degrades the use of scrip. This may be, as you say, a "secondary" effect, and I also perceive clearly that I am treating two things at once here, instead of just one variable. Yet I also seem to sense that taxation does not represent merely a reduction in the money supply, but also a more equitable form of levying citizen support for the enterprise of democracy.

Federalist No. 36 deals with related ideas. Although I don't believe this paper by Alexander Hamilton is the last word on taxation policy, he points out the importance (which I derive separately) of recognizing that there are different ways of taxing and different types of tax. I take it a step further than that particular paper with this observation:

A condition for government is that it has powers of coercion to ensure compliance with its edicts.

Taxation seems, to me, to be one of the least harmful ways of enforcing this participation. It contrasts well with a system - say that of the Soviet Union - where your participation is further enforced by even more coercive means, such as being pointed to a specific career, instead of allowing market feedback.

I agree when you say that "real resources and real production levels" are the constraint on governments. However, there is also the complication of debts - even if we simply tell investors to hold their horses (as I advocated recently) as their investments will be made good, it seems to me that the MMT approach is similar to the Austrian in that it ignores the fact that the market reacts in a predictable (irrational, yes) way to it, just as in the babysitting cooperative example. To be sure, I do not think these oversights are equal; but they seem to be oversights nonetheless.

re rothbards comments on keynes, as also applies to Bertrand Russell: of course they were incredibly egotistical and overweening; they were born into the british ruling class (esp Russell) - a class whoose power ans sense of entiltelment greatly exceeds todays hedge fund billioniares - and they were incredibly smart.

It would have been a miracle if they were not egotistical and overweening; that they developed any sense of compassion and understanding of ordinanry people, given their handicap of birth, is indeed a testament to their intellectual and emotional abilities.

I think Rothbard is also partly right in dissing Keynes as opposed to bourgoiese values; not in the sense that rothbard means, but in the sense of being open to the demimonde; it is hard to imagine that either keynes or russel would be opposed to gay marriage...